Effect of Transaction Costs on Seller Decisions among Small-Holder Cassava Farmers in South-Eastern Nigeria

Okoye, B.C and Onyenweaku, C.E and Ukoha, O.O (2010): Effect of Transaction Costs on Seller Decisions among Small-Holder Cassava Farmers in South-Eastern Nigeria. Forthcoming in: Nigerian Association of Agricultural Economists

Abstract

A linear probability model (LPM) analysis of seller decisions selling cassava on-farm (farm-gate) or off-farm (market) was derived and estimated consistent with a sample 216 farm households. Variables of proportional transaction costs have different effects on off-farm and on-farm market participation decisions. The seller type decision revealed that coefficients for have a personal means of transport, road conditions to the nearest town and marketing experience were positive and significantly related to increase in off-farm cassava sellers at 5% level of probability. The coefficient for distance from the house to the farm was negatively and significantly related to increase in farmers selling off-farm at 1% level of probability. The coefficients for crop transportation costs, distance to the nearest town, distance from the house to the farm and yield were negative and significant at 5% level of probability. These decisions to participate as an off-farm or on-farm seller were as a result of proportional transaction costs associated with participating in the market. It was found that unexpected transaction costs inhibit farm households from selling off-farm. The results therefore calls for policies aimed at infrastructural development especially on roads and establishment of bulking centers to mitigate transportation costs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Transaction Costs, Seller Decisions and Cassava Farmers
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D2 - Production and Organizations

References

Binswanger, H.P., Khandkar, S.R and Rosenzweig, M (1993). “How Infrastructure and Financial Institutions Affect Agricultural Output and Investment in India.” Journal of Development Economics 41: 337–366.

de Janvry, A., Fafchamps, M and Sadoulet, E (1991). Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained. Econ. J. 101(409): 1400-1417.

Ezedinma, C., Ojiako, I.A, Okechukwu, R.U., Lemchi, J., Umar, A.M., Sanni, L., Akoroda, M., Ogbe, F., Okoro, E., Tarawali, G and Dixon, A (2007). The Cassava Food Commodity Market and Trade Network in Nigeria. IITA, Ibadan, Nigeria 296pp.

Fafchamps, M., and Hill, R (2005). “Selling at the Farmgate or Traveling to Market.” American Journal of Agricultural Economics 87:717–734.

Feder, G., Richard, E Just and David Zilberman (1985). Adoption of Agricultural innovations in developing countries: A survey of Economic Development and cultural change 33(2), Pp 255-298.

Gujarati, D.N (2004). Basic Econometrics. 4th edition, Tata Mcgraw-Hill Inc, New York. Pp. 595-596.

IITA, UI and IFPRI (International Institute of Tropical Agriculture, University of Ibadan, and International Food Policy Research Institute). (2004). Assessment of Nigeria’s Agricultural Policy (ANAP): Mitigating Constraints to Commercialization and Investments in Nigeria’s Agriculture. Draft report (15 May), implemented by IITA in collaboration with UI and IFPRI. 147pp.

Key, N., Sadoulet, E. and de Janvry, A (2000). Transactions Costs and Agricultural Household Supply Response. American Journal of Agricultural Economics, 82(2):245-59.

Makhura, M.T (2001). Overcoming Transaction Costs Barriers to Market Participation of Smallholder Farmers in the Northern Province of South Africa. A PhD Dissertation submitted to the Department of Agricultural Economics, Extension and Rural Development Faculty of Natural and Agricultural Sciences University of Pretoria, Pretoria. 182pages

Minten, B and Kyle, S (1999). The effect of Distance and Road Quality on Food Collection, Marketing Margins, and Traders’ Wages: Evidence from the former Zaire. Journal of Development Economics. 60:467–495